“5x” is useful statutory shorthand, not exact arithmetic for every inflation-rounded point. At 25% certified savings in a tax year beginning in 2026, a hypothetical 100,000-square-foot building produces $59,000 at the base rate or $297,000 at the increased rate before limits.
Prevailing wage and apprenticeship (PWA) affect the increased amount, not every base deduction. The project must support compliance or a valid exception; a larger estimate does not create its own evidence.
Two paths
The increased rate has a separate labor gate
The same certified savings percentage can lead to different potential rates. For 2026, 25% corresponds to $0.59 base and $2.97 increased per square foot.
Neither amount is a credit or guaranteed deduction. Dates, technical certification, costs, and prior claims still matter.
2026 hypothetical amount at 25% savings
Same building and savings; different potential paths.
100,000 SF × $0.59
100,000 SF × $2.97; PWA or valid exception
| Item | Value | Note |
|---|---|---|
| Base path | $59,000 | 100,000 SF × $0.59 |
| Increased path | $297,000 | 100,000 SF × $2.97; PWA or valid exception |
Start exception
Installation beginning before January 29, 2023 may qualify for an exception
Preserve contemporaneous evidence showing when installation began under the applicable rule. Do not rely on a general contract date or import another incentive’s safe harbor.
If the exception does not apply, evaluate wage, apprenticeship, contractor, subcontractor, and recordkeeping obligations across the covered installation work.
Prevailing wage
Classifications and locality shape required wage and fringe amounts
Review labor classifications, applicable determinations, base wages, fringe benefits, hours, and the work location. Contractor and subcontractor payroll records belong in the coordinated file.
A payroll summary without worker-level source support may not explain how classifications, rates, and hours were tested.
Increased-path decision
Start evidence determines which labor question follows.
Installation start
Verify date
Before Jan. 29, 2023?
Review exception
Otherwise
Document PWA
Filing
Reconcile Forms 7220 and 7205
Three apprenticeship tests
Hours, ratios, and participation must remain separate
After 2023, the applicable labor-hour percentage is generally 15%, subject to the installation-start exception and governing rules. Ten thousand covered hours would imply 1,500 qualifying apprentice hours, but that arithmetic does not satisfy ratio or participation requirements.
An employer with four or more covered workers generally must employ at least one qualified apprentice. Daily ratios and program rules require their own support.
Exceptions and correction
Good-faith requests and cures are documented actions
A shortage assertion alone is not enough. Preserve requests to registered apprenticeship programs, dates, delivery, responses, denials, and nonresponses when relying on the applicable good-faith framework.
Wage failures can involve back pay, interest, and IRS penalties; apprenticeship failures can involve penalty payments. Waivers, deadlines, and intentional-disregard rules require project-specific review.
Filing package
Connect payroll evidence to Forms 7220 and 7205
Final-regulation applicability and transition rules depend on installation and tax-year facts. Use T.D. 9998 final rules rather than quoted proposed text.
Form 7220 reports increased-path PWA information under current instructions, while Form 7205 reports the building claim. A valid beginning-of-installation exception affects Form 7220 treatment under current instructions; verify the revision used for filing.
PWA evidence map
A passing hours percentage does not resolve every test.
| Review point | Evidence or measure | Why it matters |
|---|---|---|
| Prevailing wage | Classification + rate | Worker, locality, wage, fringe, and hours records. |
| Apprenticeship | Hours + ratios + participation | Program and employer-level evidence. |
| Good-faith exception | Requests + responses | Document actions, denials, and nonresponses. |
| Correction | Payment + timing | Back pay, interest, penalties, waivers, and deadlines as applicable. |
Prepare the review
Build the labor file while installation is underway
- Installation-beginning evidence
- Applicable wage determinations
- Worker classifications
- Base wage and fringe records
- Contractor and subcontractor payroll
- Covered labor hours
- Apprentice program agreements
- Ratio and participation evidence
- Good-faith request records
- Correction and filing documentation
Continue the review
Common questions
Practical answers before the review
Is PWA required for a base deduction?
No. It governs the increased amount, while all other base-path requirements still apply.
Does the apprentice-hours percentage alone satisfy the rules?
No. Ratios and employer participation are separate tests.
Can a failure sometimes be corrected?
Potentially, subject to the applicable back-pay, interest, penalty, waiver, deadline, and intentional-disregard rules.